Local Banking Beyond the Bottom Line: Three Awesome Models

At GOOD we keep a close eye on the growing trends of social enterprise and its financial sector cousin, impact investing. Let's not forget some of the outstanding work taking place from the older brand of for-profit social business: Community Development Financial Institutions. Before you begrudge these humble banking heroes because of their clunky title, get to know these three impressive lending styles.

As background, CDFIs live on the margins of traditional banking, making loans that the pure pursuit of profit wouldn't permit. Some of these you know as corner credit unions or the sleek-but-temporary downtown revitalization agency. CDFIs take many shapes, the size is usually small, but some of them are making big moves and serious innovation. Here are three CDFIs to watch, all of them finalists for $8.25 million NEXT Opportunity Award run by the Opportunity Finance Network.

Clearinghouse CDFI is one of those organizations everyone wants to copy and spread around the country, but nobody can quite pin down the secret mix that makes it shine. "They go in and do what’s needed," says Mark Pinsky CEO of OFN, which is choosing the award winner along with a panel of other groups. Clearinghouse has been consistently profitable for a dozen years now, lending out more than $850 million and creating 9,000 jobs in the process. "They turn high risk investments into low risk investments by making sure the people in the community have the things they need at the prices they can afford," Pinsky says.

For example, Clearinghouse played financier to the revitalization of gang-strewn Market Creek Plaza in San Diego through participatory finance. This is the kind of hands-on banking Wall Street won't bother with: everything from letting community members vote on what businesses to bring in first (a new supermarket), to cutting deals with gangs to stop graffiti (lining a nearby block with billboards for painting on). OFN plans to expand this MacGyver style of community development from California into Nevada to build "right sized" affordable housing in the land of foreclosed McMansions.

Corporation for Supportive Housing makes sense of the mire of administrative efforts to alleviate homelessness. It starts with supportive housing, an idea dating back to the 1980s. The hard logic of government spending suggests it saves tax money to do the counterintuitive and give a homeless person a house, or a deep rent discount, then put all the services they might need right at their door: job training, mental health counseling, drug treatment. The alternative is often that a single chronically homeless person racks up millions in medical or police costs footed by taxpayers. Since 1991, CSH has put $310 million towards creating 60,000 units of supporting housing.

That only happens because of behind the scenes number crunching and paper pushing. CSH does the messy work of piecing together enough pennies to break even from all the city and state agencies that will pay a little bit for each service rendered. Pinsky says, "one of the reason CSH does this and a bank would never do it, is: it is very expensive to manage so many funding streams.” Wall Street shareholders wouldn't allow it. CDFIs though, can be profit-making without being profit-maximizing. Once the hard work is done of collecting the jumble of funding streams into one profitable pipeline, big banks can come in to play big lender. That's what's happening, and why CSH deserves the biggest kudos. CSH is in 12 states and the District of Columbia, but is putting together a national pool of capital investors to expand to at least four new states.

Primary Care Development Corporation melds money lending with medical expertise. They don't just fund hospital construction, they play expert consultant to the most needy of clinics and medical facilities so they can do their jobs better. Since 1993, PCDC has put $400 million to profitable use expanding access to health care for 825,000 low income residents of New York state.

“Generally when you finance a health care facility what you are worried about is if the insurance companies are going to pay up so you can pay the bills and make your money back,” Pinsky says, explaining how PCDC is different. "What they are thinking about is: can they change the way the organization does its work to be better at serving poor clients?" Not exactly bank-like behavior, but it wouldn't work without also pairing that technically expert consulting with funding to actually make improvements happen. PCDC plans to expand outside New York with a new round of funding.